NEW YORK – Telecom-equipment maker Nortel Networks Corp. (NT), whose past accounting problems have come under federal investigation, on Friday reported a $2.21 billion fourth-quarter loss and said it will restate more past financial statements because of accounting mistakes.
Since the Ontario-based company will have to delay filing its 2005 annual report until the end of April, Nortel warned that it could default on its $1.3 billion credit facility unless its lenders grant a waiver. Nortel said it wouldn't be able to meet its debt obligations if they came due earlier than expected, and it is working to get waivers.
Nortel said it will have to restate its financial results for 2003, 2004 and the first nine months of 2005, and will also have to adjust its results for periods prior to 2003. The company cited revenue recognition problems, mainly that it had incorrectly recognized revenue in prior periods that should have been deferred to future periods.
Nortel said it uncovered the accounting errors as part of its 2005 audit and ongoing effort to resolve past lapses in its internal checks-and-balances system for preventing accounting mistakes and fraud.
The company said it expects the revisions to hit its 2003 and 2004 revenue by $157 million and $77 million, respectively. The restatement will lower its 2003 and 2004 earnings by $91 million and $93 million, respectively.
For the first nine months of 2005, Nortel said the changes will lower revenue by $162 million, and to its bottom-line by $95 million.
"This revenue is real — it was recognized in the wrong periods," President and Chief Executive Mike Zafirovski said in statement. "The restatements do not affect the company's cash position."
Zafirovski added that Nortel is committed to providing accurate financial information and resolving its internal controls issues, "though it will take time."
On a preliminary basis, Nortel said it plans to report a 2005 fourth-quarter loss of $2.21 billion, or 51 cents per share, compared with a restated 2004 fourth-quarter profit of $107 million, or 2 cents per share. It expects to report a 14 percent gain in fourth-quarter revenue to $2.95 billion compared with $2.59 billion.
Nortel said its fourth-quarter loss includes litigation costs of $2.47 billion, which cut its earnings by 57 cents per share for the quarter. The costs stem from Nortel's proposed settlement of shareholder lawsuits.
In addition, Nortel said it will postpone its annual shareholders' meeting, which was scheduled for May 2, because of its restatement.
Meanwhile, Nortel said it is working to improve the business and build shareholder value. The company's stock has traded between $2.26 and $3.57 over the past 52 weeks.
The company's shares fell 10 cents, or 3.2 percent, to $2.99 in premarket trading.